Back
Wealth Check: Photographer seeks picture perfect financial
future
By Ben Chu
Published: February 2004
This article appeared in The Independent Save and
Spend Supplement.
Matteo Modè arrived in London from
Mantua in Italy nearly five years ago and took a master's degree in environmental
change at University College.
He became an IT consultant for the International
Union for the Conservation of Nature but since 1993 he had done photographic
assignments for Italian publications. In December last year, Mr Modè,
34, set up as a full-time freelance photographer. "I'm earning £800
a month, but this should increase," he says. "I have six to
eight months to see if this is feasible." Mr Modè also plans
to de freelance website design and IT consultancy. He is renting a flat
in north London but would like to buy a home. He has £9,000 in a
Barclays OpenPlan savings account and paid £1,900 into a superannuation
scheme. He asks: "Are there any flexible pension schemes I could
start?"
We put Mr Modè's case to Justin Modray,
of Bestinvest Brokers, Ben Yearsley of Hargreaves Lansdown, Patrick Connolly
of John Scott and Partners and David Higgins, of Glazers Financial Services.
Matteo Modè, 34, Photographer
and IT Consultant
Occupation: Photographer and IT Consultant
Property: Renting flat, north London
Salary: Roughly £800 a month
Debts: none
Savings: £9,000 in Barclay OpenPlan savings account
Pension: £1,900 in university superannuation scheme
Outgoings: £700 to £800 a month
Insurance: £12 per month to ENL professional equipment
and life insurance
Savings
Mr Modray says Mr Modè should shop
around for a better deal than his Barclays OpenPlan account. This account
pays 2.10 per cent gross a year on his £9,000 balance. A better
option for a straightforward no-notice savings account would be ING Direct,
who pay 4.41 per cent gross a year. Alternatively, Mr Modè could
use his mini cash Isa allowance of £3,000 each tax year to enjoy
tax-free savings. Safeway's are offering 4.35 per cent from 1 March.
Mr Higgins says Intelligent Finance is paying
the top rate of interest for a CAT standard Isa of 4.6 per cent a year
and withdrawals can be made without notice. Investing now and after 6
April will allow him a total investment of £6,000. His remaining
savings could be depositioned in the Intelligent Finance instant-access
account which pays 4.25 per cent.
Mortgage
Mr Higgins says Mr Modè should save
a deposit of 5 per cent of any mortgage or apply for a 100 per cent one.
The deposit of 5 per cent for a £150,000 mortgage would be £7,000
plus expenses of £2,880 (£1,500 in stamp duty, £500
in legal fees, £385 for a survey and £495 for an arrangement).
Mr Modè would also need to be earning
£39,500. If he was, Northern Rock offers a 100 per cent mortgage
at a rate of 4.99 per cent, a discount of 0.91 per cent for the first
three years. There are no redemption penalties and if the flat increased
in value he could remortgage for a better rate.
Mr Yearsley says Mr Modè's only option
is a self-certification mortgage which does no require proof of income.
Most self-certs will lend only up to 85 per cent load to value, so on
a £150,000 flat, Mr Modè would need to borrow £127,000,
12 times his present earnings. A 4.5 interest-only mortgage would cost
£478 a month. Northern Rock is among the bigger lenders in the self-cert
market.
Mr Modray says Mr Modè should defer
buying a property until his career is more established and he can be sure
of a stable income. If he is determined to buy, he should at least consider
a property where he can rent out one or more bedrooms to generate rent.
Pension
Mr Modray says if Mr Modè continues
to be self-employed, the simplest and most flexble option would be a stakeholder
pension. Charges are capped at 1 per cent a year and he can stop and start
monthly contributions as he wishes or simply make lump-sum payments when
his is able. Contributions attract tax-relief, so a £100 contribution
will cost him only £78. The downside is that he will not be able
to access the pension until he is 50. He should pay careful attention
to the funds in which he pension invests. Given he has at least 26 years
until he can retire he should focus on stock market based funds because
growth is likely to be higher than fixed-interest or cash deposit.
Mr Higgins says as with most self-employed
people it would be better for Mr Modè to make single contributions
at the end of the tax year when he knows what profits he has made and
what his tax liability will be.
Mr Connolly says Mr Modè needs to
be careful before transferring his university superannuation scheme into
a personal pension plan. Although £1,900 is not a large sum he should
fully investigate the benefits that he will be foregoing if he moves,
and compare these with any potential new scheme.
Insurance
Mr Modray says Mr Modè has no financial
dependants so it is unlikely he needs life insurance. More important is
the need for an income if he is unable to work through sickness for extended
periods.
He can apply for state incapacity benefit
if he is unable to work for a least four days, provided he has maintained
his National Insurance contributions. He could take out a private policy
to increase his level of cover, but income protection insurance is expensive
and unlikely to be viable until his income exceeds his outgoings.
|
